In Chu v. Parwell Investments Inc. et al, 2019 ONSC 700, released on February 15, 2019, Belobaba J. places front and center the growing importance of class counsel fees in carriage motions. The cases before the court on that motion were effectively equal on most factors, such as experience and resources of counsel, the proposed plaintiffs and defendants, the framing of the causes of action, and the state of preparation. The fee arrangement emerged as the one and only determinative factor in awarding carriage. The outcome here perhaps points to where the law of carriage may be headed.
The Nature of Carriage Motions
When different representative plaintiffs bring different class actions against the same defendant(s) about the same alleged wrongdoing, and the plaintiffs or their counsel cannot agree to work together, a “carriage motion” will typically be heard to determine which proposed plaintiff’s case and counsel will be permitted to proceed, and which will be stayed. Carriage is a notoriously murky area of class actions in common law Canada. The courts have attempted to develop a test of various factors to consider when awarding carriage, but to date, no one factor is held out to be determinative, and the list remains non-exhaustive.
From a defendant’s perspective, carriage offers a prime opportunity to enjoy a front row seat as proposed class counsel pick at weaknesses in each other’s cases in open court. While defendants have standing on carriage motions, the general custom to date has been to not make submissions, but rather to listen, watch, and wait.
Class Counsel Fees as the Critical Factor
So far, courts have been called to employ a holistic analysis and “resist a ‘tick the boxes’ approach to carriage motions” – “[t]he issue is not which law firm ‘wins’ on the most factors. Rather, it is the best interests of the class and fairness to the defendants, having regard to access to justice, judicial economy and behaviour modification.” However, as class action jurisprudence has matured, experienced class counsel has typically come to know what cases can be certified, and what it takes to mount a reasonable carriage offensive. Their skills have generally become equal in framing and progressing their proposed class actions. This makes the traditional comparative analysis on carriage difficult – and perhaps artificial.
It is therefore worth questioning whether the only meaningful factor that can and should differentiate between the competing cases helmed by experienced class counsel is the fee arrangement between class counsel and the respective representative plaintiffs. This is typically divulged in the carriage records before the court. In other words, in a mature class actions bar, courts may perhaps simply inquire into who can do the best job for the cheapest price, since lower legal and administrative costs typically means higher recovery for the class.
Chu is a step in this direction. Assuming a reasonable hypothetical settlement amount, Belobaba J. compared what each consortium would charge the class in fees and other costs if they were to prevail as carriage counsel, with reference to their retainer agreements and any related funding agreements. In the end, a “fair-minded comparison of the fees and funding factor” resulted in only one “objectively measurable differentiation” – one consortium would charge a higher contingency percentage than the other – and “[t]his difference will have a significant multi-million-dollar impact on the actual damages that will be paid out to the class members.” This outcome was all that mattered for Belobaba J. in Chu.
Revisiting a “Reverse Auction”
Realistically, if fees are indeed going to be the deciding issue on carriage motions going forward, then perhaps it is time to revisit the notion of “reverse auctions” on fees by class counsel on carriage motions. While not employing it, Belobaba J. raised this idea in a Canadian context in 2014 in Mancinelli v. Barrick Gold, where he queried whether the competing consortiums would lower their contingency percentage if granted carriage, declaring “[a]s is often the case with product purchase decisions, when the goods or services being compared are otherwise indistinguishable, price can be the determinative factor”.
The Ontario Court of Appeal did not dismiss this hypothetical approach when upholding Belobaba J.’s decision in Mancinelli in 2016, where it referred to the possibility of a “reverse auction” and noted that some U.S. courts have indeed instituted competitive bidding procedures in carriage cases. But the Court of Appeal did issue a caution:
There is room for debate about whether auctioning the right to represent the class will be in the best interests of the class. Is it in the best interests of the class to be represented by counsel who is prepared to take on the onerous professional and financial challenges of serving as class counsel at the lowest price? Will such counsel have a strong incentive to settle the case to recover their discounted fee at the earliest moment? Will such counsel be vulnerable to being ground down by the defence? On the other hand, is an auction a legitimate proxy for market realities? The issue does not call for a decision in this case and I would leave it, if necessary, for another day.
A fee-driven approach by Belobaba J. in Chu may have benefits. It removes the need to spend time, costs, and judicial resources on assessing an open-ended list of factors that very often lead to confusion and a lack of predictability for all parties involved. Whether Chu signals the future for carriage disputes in a field of otherwise evenly matched class counsel and capabilities, remains to be seen. So too does the issue of whether any fee-driven approach to carriage will lead to adoption of the “reverse auction”. Until that time, defence counsel can continue to listen, watch, and wait – and take good notes – as proposed class counsel battle it out on the traditional carriage factors, for all to see.